This exercise reviews the characteristics and accounting aspects of the two types of leases. A lease is a contractual arrangement between the lessor (owner of the property) and a lessee (renter of the property) that grants the lessee the right to use specific property for a period of time in return for cash payments. Some lease agreements are in substance installment purchases of assets by […]

X Ltd. issued 10,000 12% debentures of Rs.100 each at par on 1 April 2008. These debentures are redeemed at the end of the fifth year at 5% premium. It was resolved that sinking fund should be formed and invested in 10% development bonds of Rs.100 each. Interest of bonds is payable on 31 March every year. Reference to Sinking Fund Table shows that Rs.0.1638 […]

D. Scott Corporation provides a two-year warranty with the sale of its product. Scott estimates that warranty costs will equal 4% of the selling price the first year after sale and 6% of the selling price the second year after the sale. The following data are available: 2013 2014 Sales $400,000 $500,000 Actual warranty expenditures 10,000 38,000 The balance of the warranty liability at December […]

Swetha Ltd. was formed with an authorized capital of Rs.20,00,000 divided into equality shares of Rs.10 each, to acquire the business of L&M whose balance sheet on the date of acquisition was as follows: Liabilities Assets Capital 10,00,000 Freehold Premises 14,00,000 General Reserve 7,00,000 Stock 2,00,000 Sundry Creditors 3,00,000 Sundry Debits 2,70,000 Less: Provision for Bad Debts: 20,000 2,50,000 Cast at Bank 1,50,000 20,00,000 20,00,000 […]

Mythali Ltd. was formed to take over the assets and liabilities of Mr. Ajay and to acquire the adjacent premises. The balance sheet of Mr. Ajay on 31 March 2011 was as follows: Liabilities Assets Trade Creditors 20,000 Cash in Hand 5,000 Capital 4,80,000 Cash at Bank 30,000 Book Debts 25,000 Stock-in-Trade 1,00,000 Furniture 20,000 Land & Buildings 3,20,000 5,00,000 5,00,000 The purchase consideration was […]

Model: Accounting entries in both the books of purchasing company and vendor. Doss Ltd. was formed with a nominal capital of Rs.20,00,000 consisting of 1,00,000 equity shares of Rs.20 each and 6,000 preference shares of Rs.100 each to acquire on 1 April 2011, the business of Yoga & Co. Yoga’s balance sheet as on 31 March 2011 was as follows: Liabilities Assets Capital A/c: Land […]

Model: Collection and payment of vendor’s debtors and creditors On 1 October 2010, Brilliant Ltd. purchased the business of Mr. Bose, a sole trader, taking over all the assets with the exception of book debts amounting to Rs.2,00,000 and creditors amounting to Rs.1,00,000. The company undertook to collect all the book debts and pay off the creditors and for this service, it has to be […]

Model: Debtors and creditors taken over by the Company Sun Ltd. acquired the business of Moon Agencies, whose debtors and creditors were taken over by the Company for collection and payment for a commission of 10% on all amount collected and 2% on amount paid. The debtors amounted to Rs.4,50,000 and creditors to Rs.2,20,000. There was a contingent liability of Rs.60,000 The Company collected one-third […]

Model: Continuation of same set of books A and B carrying on business in partnership, sharing profits and losses in the ratio of 2:1 decide to dissolve the firm and sell the business to a limited company on 31 March 2011, the balance sheet of the firm stood on that date as follows: Liabilities Rs. Assets Rs. Sundry Creditors 2,25,000 Cash at Bank 40,000 Reserve […]

Show by means of journal entries how will you record the following issues: Also show how they will appear in their respective balance sheets: A Ltd. issued 10,000, 10% debentures of Rs.100 each at a discount of 5% redeemable at the end of 5 years at par B Ltd. issued 10,000, 11% debentures of Rs.100 each at par redeemable at the end of 5 years […]